But it's likely worse than we thought, as the CBO also said this week that most of the benefits of any added economic growth from the tax cuts won’t stay in America.
President Donald Trump touted the economic growth triggered by his tax cuts in a speech Thursday afternoon, pointing out the projected growth of gross domestic product (GDP) over the next 10 years had increased because of the plan.And that deficit keeps growing, with this week’s US Treasury statement confirming an earlier report from the CBO saying that Uncle Sam spent nearly $600 billion more than it took in for the first half of Fiscal Year 2018.
But 80 percent of the economic growth generated by the Republican tax cuts will eventually go abroad and benefit foreigners, according to a new report by the nonpartisan Congressional Budget Office.
The report found significant differences between projected GDP, which measures the level of production in the U.S., and gross national product, which measures the income earned by all Americans. If the economic impact from GDP is higher than GNP, the difference between the two is income generated in the United States but going to foreigners. According to the CBO, on average 34 percent of income from the economic activity driven by the tax cuts is flowing out of the country, and in 2028, when the full effects of the tax cuts are in place, that number will increase to 80 percent.
….Nearly one-third of the U.S. stock market is owned by foreign investors, which means they’re benefiting from the $238 billion increase in stock buyback authorizations since the tax law passed. An analysis of Fortune 500 companies found that corporations have spent 37 times more on stock buybacks than on American workers’ bonuses and wages. “Republicans had fair warning that a huge chunk of this economic boost would flow to foreigners,” said [Democratic Senator Chris] Van Hollen. “The bottom line is that foreigners own a large chunk of U.S. corporations and will get a big windfall.”
At the same time, U.S. deficits are projected to balloon because of the decrease in revenue being collected under the tax cuts. The CBO projects that federal spending will exceed revenues by $804 billion in fiscal year 2018, up from $665 billion in 2017. The national debt is now on track to be 100 percent of GDP by 2028. That means the U.S. will have to borrow money to make up for its shortfalls, and much of that money will come from abroad. The small gains to GDP will be offset by increased interest payments abroad.
As noted above, that deficit over 6 months is nearly as much as the deficit the country racked up for all of Fiscal Year 2017, and while the CBO estimated that the deficit will only grow by $204 billion in the second half of this year (largely due to tax payments being sent to the IRS in April), there is a worrying stat in the Treasury statement that makes me wonder if things might not even be worse.
February and March were the first two months of lower tax withholdings from the Trump/Ryan tax bill in DC, and revenues have dropped compared to what we saw a year ago as a result.
Withheld individual income taxes, Feb-March 2018 vs 2017
Feb 2017 $116.6 billion
Feb 2018 $110.7 billion
March 2017 $139.6 billion
March 2018 $132.3 billion
There’s also the question about what will happen with tax refunds, as many people accelerated their property tax and state income tax payments to the end of 2017 so they could take advantage of deductions that they might not get due to changes in the GOP tax bill that make those deductions less likely to be used in 2018. For February and March, individual income tax refunds were up 2.1%, basically the rate of inflation, so no big change yet, but when added to the lower withholdings, it definitely leaves a hole. .
But April’s figures might be the bigger indicator of what the new tax bill did to change people’s behavior, as that is typically a month where the Treasury runs its biggest one-month surplus of the year due to people sending in payments to DC ($182.4 billion last year). If we aren’t seeing figures near that $182 billion this year, then it’s time to worry, as it means we are likely heading toward a $1 trillion deficit even sooner than 2020.
So to review, the GOP tax cuts aren’t doing much to raise wages of everyday workers, most of its benefits will go overseas, and our deficits and interest rates are climbing higher than expected. That’s not a very good recipe for economic success, and it sure makes me think that 3.3% growth and 3.8% unemployment that the CBO is counting on for 2018 is going to be very hard to reach.